Harrisburg Creditors Close to Deal to Resolve Debt Crisis

By Romy Varghese -
Jul 24, 2013

William B. Lynch, the state-appointed receiver of Pennsylvania’s capital, said “a deal is
imminent” with creditors on resolving an incinerator debt
burden of about $345 million that has left Harrisburg insolvent.

The revised fiscal rescue involves the sale of the trash-to-energy plant and the lease of city parking facilities, Lynch
said today in a statement. The transaction will remove future
liabilities for the incinerator, which hasn’t generated enough
revenue to cover its costs.

Lynch’s success with creditors would avert bankruptcy for
the city, whose incinerator debt amounts to almost seven times
its annual general-fund budget. He said he plans to submit his
proposal late next month to Pennsylvania’s Commonwealth Court,
which must approve it.

“All stakeholders” have agreed to his plan, Lynch said.
“While they realize this may be an imperfect situation for each
of them, everyone understands a cooperative solution is most
certainly in everyone’s best interests.”

Lynch’s announcement follows a move by a state-appointed
municipal overseer in Michigan, Kevyn Orr, to seek court
protection for Detroit last week. The decision by Orr, who was
put in the job by Republican Governor Rick Snyder, has brought
fresh scrutiny to local-government debt there.

Creditors’ Role

Lynch didn’t say if creditors are shouldering a part of his
plan’s costs. Before seeking protection for Detroit, Orr
proposed giving creditors, including some bondholders, less than
20 cents on the dollar.

The crisis in Harrisburg, a community of almost 50,000
residents, stemmed from financing an overhaul of the
incinerator. Surrounding Dauphin County and bond insurer Assured
Guaranty Municipal, a unit of Hamilton, Bermuda-based Assured
Guaranty Ltd. (AGO), have covered skipped debt payments since 2009.

Under his plan, the Lancaster County Solid Waste Management
Authority would buy the incinerator, which a unit of Covanta
Holding Corp. (CVA) runs. Lynch said today other claims, such as those
from Assured Guaranty and Dauphin County, must be resolved
before the sale, which may be late this year.

“Assured Guaranty is committed to working cooperatively
with the receiver and other stakeholders to finalize a recovery
plan that both restores the city’s fiscal health and respects
the rights of creditors,” Ashweeta Durani, a spokeswoman, said
in an e-mail.

Michael Fitzgerald, a spokesman for Ambac Assurance, the
guarantor that covered payments on Harrisburg’s general
obligations, said the company had no comment on Lynch’s plan.

Budget Stability

The Lancaster authority plans to sell revenue bonds to
finance its purchase, and is drafting a preliminary offering
statement to investors and other documents, Chief Executive
Officer James Warner said in an interview.

The relief from future liability for Harrisburg residents
after the transaction was described by Lynch as a “critical
step” for the city’s recovery. He said his blueprint would
stabilize the municipal budget through 2016.

“We’re pleased with the progress,” said Amy Richards
Harinath, a spokeswoman for Dauphin County, in an interview.
“We’re happy to avoid a long and costly bankruptcy.”

Also under Lynch’s plan, the Pennsylvania Economic
Development Financing Authority would take over city parking
garages and outdoor lots under a long-term lease from the
Harrisburg Parking Authority, the agency that owns them.

Chicago-based Standard Parking Corp. (STAN) would run the 8,991-space system. AEW Capital Management LP, a Boston-based property
manager, would oversee the real estate involved, and both would
receive fixed fees.

The state authority would sell tax-exempt bonds to be
repaid from lease revenue, with the debt underwritten by
Guggenheim Partners LLC.

“This plan will create important new revenue streams to
help the city reduce its structural deficit and spur economic
growth,” Lynch said in the statement. “The parking agreement
may very well become a national model.”